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US vs. UK Employment Law: What's the Difference? Part 2

7/15/2015

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By Mike Butler, Head of HR Services

One of Radius’ most consistently popular blog posts is a 2012 piece on the differences between US and UK employment law. The interest in the post doesn’t surprise me. The UK is an attractive market for US companies looking to expand, and vice versa. After all, the countries don’t just share a language — they have similar cultures, laws and political systems. All of these factors raise the comfort level of interested businesses.

But companies on both sides of the Atlantic would do well to recall George Bernard Shaw’s remark about how the two countries are “separated by a common language.” The similarities between the US and the UK can obscure important regulatory differences, some of which are outlined in the 2012 blog post I mentioned. That post addresses the following four critical areas that US and UK employers should know about when expanding into the other country: At-will employment; non-compete agreements; background checks; and right-to-work requirements.

Given the ongoing popularity of the post, we thought our readers would appreciate a companion piece that outlines some other important ways in which US and UK employment laws differ. Keep in mind that, generally speaking, UK employment laws tend to favor the employee over the employer to a greater degree than in the US.

Changing employment contract terms. In the US, an employer may change the terms of an at-will employment contract virtually at any time, without consulting the employee. In the UK, employers don’t have anything like that kind of discretion. In fact, an employer must obtain an employee’s (or employee representative’s) agreement when making any contract change. Once a contract change is agreed upon, the employer must then update the terms in writing and notify the employee in writing within a month to indicate exactly what has changed.

Employment discrimination. There are many similarities between US and UK employment discrimination laws. For example, it is unlawful in both countries to discriminate against anyone at work because of age, sex, race, religion or disability. That said, there also some important differences. US protections against age discrimination, for example, apply only to workers 40 and over. In the UK, not only are older workers protected, but young workers are protected against discrimination because of youth. The UK also protects workers from discrimination on the basis of being or becoming a transsexual person and on the basis of sexual orientation; US federal employment law does not currently have these protections. However, employers new to the US should note that US states have their own employment laws that may exceed federal protections. For example, Massachusetts state law does (like the UK) prohibit employment discrimination on the basis of sexual orientation.

Employer consultation prior to mass layoffs. When proposing to lay off 20 or more employees, a UK employer must consult with the affected employees’ trade union or other representative. If worker representation does not exist, then the employer must hold elections so that a representative is appointed for the consultation. The consultation is intended to avoid or reduce the number of redundancies. As the UK’s government website indicates: “Consultation doesn’t have to end in agreement, but it must be carried out with a view to reaching it.” In addition, employers must notify the UK’s Redundancy Payments Service (RPS) at least 30 days before the first lay off (or at least 45 days in cases where 100 or more employees are to be dismissed). An employer who fails to notify RPS is subject to a fine of up to £5,000.

The US has similar protections in place, but they are less sweeping. The US’s Worker Adjustment and Retraining Notification Act (WARN) covers (generally) employers with 100 or more employees. WARN requires most US employers with 100 or more employees to provide notification 60 calendar days in advance of plant closings and mass layoffs. Some US states have similar laws that require employers to take additional steps in the event of layoffs.

Protections following M&A and other transfers. The US has certain worker-protection laws in place in the event of a merger or acquisition. For example, the WARN act mentioned above requires employers with 100 or more employees to give workers advance notice of certain M&A transactions. And following an M&A transaction, either the buying or selling entity (depending on the situation) must in some cases provide terminated workers and their families the right to choose to continue group health benefits for limited periods under COBRA.

UK worker protections related to M&A transactions are comparatively strict and are dictated by the Transfer of Undertakings (Protection of Employment) regulations (TUPE). TUPE applies to all businesses, regardless of size. Under TUPE, the new employer takes over the employment contracts of all workers. And it is a violation of law if the new employer doesn’t meet the terms of those original contracts. Furthermore, the new employer can’t normally change a new employee’s terms and conditions to make them the same as those of the new company, even if the employee agrees to the change. Any collective bargaining agreements in place before the date of the transfer will also apply. And in some cases, employees of a UK business who are based outside the UK may still be protected under TUPE.

When a company is considering international expansion, there are a number of details to consider: what type of entity to set up, how to hire employees, what taxes need to be filed, etc. Though the details may vary depending on country and company specific circumstances, there are three common mistakes that businesses headed overseas make that can be easily avoided.

Most startup businesses are faced with the challenge of making the most efficient use of every dollar of their financing. As a result, creative cost-cutting measures are essential to increase available working capital.

For the unwary employer, however, cutting the wrong corners can be financially disastrous and may crush the life out of a new venture with enormous penalties, possible double damages, expensive litigation and potential individual liability for officers and directors. What follows are four costly employment mistakes companies can make, and how to avoid them.